Is the Tax Code REALLY that Complicated?

23 Apr

Full disclosure:  I worked part-time as a paid tax preparer for a couple of years, and had gone through extensive training.  I also majored in mathematics and statistics in college, and love playing with numbers.  And I have always prepared my own return.

NEVERTHELESS — Some things I learned about tax preparation are:

1.  The great majority of returns are very straightforward;

2.  The deductions, credits, and exemptions available to individual taxpayers are there to recognize personal situations (e.g., high medical bills, child care costs, special teacher costs) and to implement government priorities (e.g., buying homes, encouraging charitable donations, encouraging saving into 401(k)s);

3.  The on-line resources for looking things up, when required, are extensive and fairly easy to use;

4.  Simple macro-rules require multiple pages of micro-rules to try to ensure fairness and preclude fraud;

5.  Free, or inexpensive tax prep software exists to handle 90% of returns needing to be submitted.

I cannot explain why people take simple returns to paid tax preparers unless:

1.  They want the feeling that someone else is responsible, or shares responsibility (fear of the IRS);

2.  Our educational system has failed them miserably, and they cannot adequately read, write, and/or perform basic arithmetic functions.

I admit there are more complicated situations that some taxpayers have that require considerable research, and even, in the end, something of a guess.

At the corporate level, things are, of course, trickier.  But even there, no one needs to know what’s in all the 50,000 (?) pages of the tax code.  All they need to know is how to find their particular situation in the tax information resources.

Need to close some loopholes or outdated deductions, credits, and subsidies?  Sure.  But does that necessarily imply that the code is too difficult for laymen to apply for their personal taxes?

How think you?  Is this what we really need our Congressmen to be struggling with for the next two years?  Can’t we tweak it around the edges to address some of the more egregious elements of it for now, while we focus more attention on reining in spending?

What should be tweaked?  Well, lower corporate tax rates might encourage more investment in the U.S.  Elimination of subsidies for ethanol production, agriculture, etc., etc., to start with.

Your thoughts?

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